In just over a year, crypto-bridge hacks have generated over $1 billion

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In just over a year, crypto-bridge hacks have generated over $1 billion

In just over a year, crypto-bridge hacks have generated over $1 billion
Source: Bloomberg
1648833663 01 Apr / 17:21

The $600 million hack of a crypto "bridge" underpinning Axie Infinity's play-to-earn video game earlier this month shows the increasingly dangerous nature of obscure software utilized in the world of digital assets, blockchains, and the metaverse.

According to data provided by researcher Chainalysis, flaws in bridges, which allow tokens built for one blockchain to be used on another, have resulted in the theft of more than $1 billion in bitcoin in just over a year over seven different occurrences. In the case of the recently hacked Ronin Bridge, the software was used to help Axie Infinity's network speed up transactions and cut costs because the underlying Ethereum blockchain couldn't manage the surge in gaming demand swiftly or inexpensively.

“Bridges, in my opinion, are the single largest potential point of failure in crypto right now,” remarked Sam Peurifoy, head of interaction at Hivemind Capital and leader of the Axie Infinity play-to-earn guild Kapital DAO.

According to data from Dune Analytics, Ethereum bridges are worth more than $21 billion. Hackers stole $300 million from Wormhole, a blockchain bridge connecting Ethereum and the Solana blockchain, just last month. The Meter Passport bridge was hacked for many million dollars of cryptocurrency in the same month. Qubit Finance, a project that offers cross-chain functionality, was hacked in January.

In addition to hacking, bridges have been found to be vulnerable to a variety of other issues. Last year, the Celo network’s Optics bridge became dysfunctional when the project’s bridge development team effectively lost control.

It’s not always easy to determine out who built a bridge or who runs it. Developers can remain anonymous, and the names of the validators, which are a small group of computers that secure the bridge’s transactions, can be kept hidden on purpose. Many are run by companies with insufficient security personnel; it can take days for an issue to be found. The theft of approximately $600 million at Ronin occurred on March 23, but was finally detected on March 29.

As the value of tokens passing through them rises, bridges become increasingly susceptible. There was simply the Bitcoin blockchain 13 years ago.

There are now thousands of blockchains, each with its own set of benefits (reduced transaction fees, for example) and a slew of applications ranging from nonfungible markets to decentralized crypto exchanges. To earn yields or buy art, investors must increasingly jump from one chain to another: an Ether token holder could want to travel to Solana to buy NFTs or Polygon to play games, for example.

“I know it sounds like the cross bridges is a bit of a train wreck, but I don’t think it’s as bad as that,” before the Ronin hack, Peter Robinson, a bridge expert at blockchain infrastructure builder ConsenSys, said in an interview.

Axie Infinity’s Ronin was created to meet increased demand from Axie gamers wishing to avoid Ethereum’s high transaction costs.

“Bridges are an incredibly critical piece of infrastructure at this point,” after the Wormhole hack, Kanav Kariya, president of Jump Crypto, remarked in an interview. “We are strongly moving toward a multi-chain world.” Jump Crypto ended up delivering more than $300 million in Ether to Wormhole’s users in February so they wouldn’t lose their money. The loss of a bridge can ricochet throughout a tiny blockchain’s ecosystem of apps, resulting in enormous losses for all of them.

“We’ve invested billions of dollars into the crypto ecosystem,” Kariya told. “Given the possible ripple effects of such a critical piece of infrastructure having a loss, we thought it was critical to step in in the early stages.”

Ronin’s predicament is a little different. The chain’s flagship app, Axie Infinity, was designed by the Sky Mavis game studio, who also built the Ronin Bridge. The company also stated that it will reimburse subscribers, albeit it did not specify how.

Bridges have “basic security restrictions,” according to Vitalik Buterin, co-founder of Ethereum. To keep native assets safe, Buterin recommends keeping them on the blockchain for which they were created. However, many people may not be able to buy it.

One major underlying issue is that most bridges are uninsured, which means that if they are destroyed, monies will not be reimbursed.

In an interview before the Ronin hack, Yat Siu, co-founder of Animoca Brands and an investor in Sky Mavis, said: “We don’t provide implicit guarantees. We think of it as more of a warranty service. If a product ended up being faulty, if you have a faulty car, we’ll give you back your money.”

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